Because of the news coverage provided to high-profile tax evasion cases, they are ideal illustrations for paid tax preparers to promote the value of their services. Some examples occurred in 2011.
One case is the investigation of Credit Suisse for allegedly helping American taxpayers hide their income in offshore bank accounts. This is the same allegation the IRS proved in 2009 against Swiss bank UBS. The IRS is clearly increasing its efforts to battle tax evasion. The publicity for actions against Credit Suisse and UBS not only proves the futility of fighting the IRS, but also serves to remind the public about the value provided by the tax preparation industry to ordinary taxpayers. After all, the ultimate goal of the IRS in pursuing Credit Suisse is to locate individual tax cheaters.
Surveillance by the IRS seems heightened against individuals in certain occupations or particular income levels. Consequently, headlines were made when award-winning rapper Ja Rule was convicted of tax evasion on $3,000,000 he earned and sentenced to 28 months in jail. But the IRS actually takes on low-profile actions to catch tax cheaters in any amount. To avoid being mistaken as a tax evader, ordinary taxpayers must avoid even honest mistakes. The best path to this end is hiring a professional who has completed a registered tax return preparer program.
Dealing with an increasingly complex tax code and highly active IRS enforcement demands tax return preparation experts. The number of IRS enforcement officers dropped below 20,000 in 2003 but has gradually grown back to around 23,000. In addition, the IRS has implemented new programs to catch special types of tax evasion, such as hiding income in assets overseas. Another example is the Global High Wealth Industry Unit, where IRS officers operate in teams to locate examination opportunities among high-income taxpayers.
IRS audits of small businesses and moderate-income taxpayers normally only capture a few hundred dollars. However, each process is inexpensive to conduct. Plus, they serve as warnings to friends and family to exercise compliance with tax rules. The RTRP examination and certification process is an IRS effort to assure that tax preparers follow correct procedures or risk having to find another line of work.
Tax practitioners should remind the public that tax preparation training aims to avoid IRS examinations as much as survive any that occur. Nevertheless, the incidence of tax audits is rising. About 1.11 percent of all taxpayers were audited last year. That’s an increase from 1 percent in the previous year. Meanwhile, the IRS has focused on particular types of taxpayers. Those with business interests reported on Schedule C were audited a little more than 4 percent of the time. Returns reporting income over $200,000 had an audit rate of 3.1 percent. In addition, as disclosed in the news covering high-profile tax evasion cases, IRS attention is drawn to returns that over-report deductions and under-report offshore accounts.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.